Daily Commentary

MarketMinder’s View: Yes, Japanese exports rose in value terms, to the tune of 3.6% y/y, which seemingly points to improvement from Q3, when falling exports contributed to GDP’s contraction. But export values get skewed by currency swings, making export volumes more meaningful. This article omits them, so allow us to fill in the gaps: Per Japan’s Customs Office, volumes fell -1.2% y/y in October, a touch worse than September’s -1.0%. Yet there is also some good news. While US-bound exports fell -3.1% y/y in value terms, as the article notes, in volume terms they were flat. That defies the article’s closing narrative, which laments exports to the US continuing to fall despite September’s trade agreement. Trade with the EU was another bright spot, with exports up 9.2% y/y in value terms and 4.9% in volume terms. So while exports aren’t firing on all cylinders, the gloomy tone seems a tad unwarranted.

MarketMinder’s View: Among the many rumored measures in next week’s UK Budget is a dividend tax hike, and while there are of course no policy specifics available, that hasn’t stopped one outfit from trying to estimate the hit. As discussed here, they assumed a four percentage point hike, then gauged the amount of dividend payments that goes to each tax bracket. Their conclusion: “If the Chancellor raised the lowest rate of dividend tax to 12.75pc, it would cost 3.2 million basic ratepayers £380 a year on average, according to IG analysis. A four percentage point rise would also cost the average higher rate taxpayer an extra £996 a year, while someone in the additional rate tax bracket would pay £3,280 more.” The rest of the article laments the purported downstream effects on household budgets and domestic investment, warning it is negative on all fronts. We get the logic, but we think it misses a simple point: The more you tax something, the less of it you get. Dividends aren’t companies’ only means of returning capital to shareholders. A higher dividend could very well lead to more stock buybacks. Or, it could motivate companies to reinvest profits. The potential downstream effects here aren’t all bad. On the flipside, that also makes higher dividend taxes unlikely to raise as much revenue as projected. But overall, this looks like yet another place where reality could easily beat low expectations, presuming this tax hike even goes through—a very big if, considering all the trial balloons floated and popped in recent months.

MarketMinder’s View: As the UK’s household energy price cap faces another increase in January, it is time for your regular reminder that price caps don’t cap prices. They become targets, as they have in the UK, and the cap “resets” as wholesale electricity and gas prices rise and fall. That reset used to be semiannual. But when that interval meant households were late to reap the benefits of falling wholesale prices, regulators changed it to a quarterly reset. Accordingly, with wholesale prices down over the last three months, analysts expected the cap would drop. Instead, it is rising 0.2%. That is far from huge, amounting to about £3 annually on average, but it adds insult to injury as energy tax hikes are set to take effect in April, driving bills even higher. None of this is sneaking up on markets, which are well aware of the negatives here and have long since moved on. But we think it helps explain one reason why sentiment in Britain remains so low. And we doubt the regulator’s attempt at smoothing folks over will help—saying energy prices are down in inflation-adjusted terms over the last two years probably rings hollow when energy prices were the main thing keeping inflation higher than the rest of the developed world.